Commentary: Chinas military might is much closer to the US than you probably think

PERTH: If you watched Chinas impressive military parade marking the 70th anniversary of Communist Party rule, you may be wondering how China now compares to the United States in terms of military might.

The answer: its a lot closer than commonly thought.

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Chinas annual military budget is estimated by the Stockholm International Peace Research Institute to be about 1.7 trillion yuan. This is about 1.9 per cent of Chinas GDP.

Using market exchange rates, Chinas annual military spending converts to about US$228 billion. By comparison, the US military budget is US$649 billion – or 3.2 per cent of US GDP.

Hence Chinas military budget is usually thought of about 40 per cent that of the US – which is often characterised as spending more on its military than the next 10 countries combined.

Such an approach, however, dramatically overstates US military capacity – and understates Chinas. In real terms, Chinas spending is worth about 75 per cent that of the US.

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PURCHASING POWER PARITY

The problem is that a simple currency conversion doesnt reflect actual price differences across countries.

An American or Australian visiting India or China, for example, finds things like street food, nannies and domestic help are all very cheap. The same principle applies to military spending.

The salary of a US soldier might be, say, US$60,000 a year. This could pay the salaries of several, if not many more, soldiers in the Peoples Liberation Army.

To make a more accurate comparison of the real purchasing power of a countrys military spending, we need to factor in differences in labour and operational costs between countries.

Ive computed the costs of defence services across countries, looking at personnel, operations and equipment costs.

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For some components of military spending, such as the cost of buying a fighter plane or warship, its appropriate to use market exchange rates to compare across countries. For other components, particularly personnel expenditure, its better to compare wage costs for similarly trained personnel.

These costs differences can then be used to construct “purchasing power parity” exchange rates specific to the defence sector.

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Using these rates allows us to see how much the spending in each country actually buys – allowing for price differences between countries as well as how defence planners might react to these different prices given their defence priorities.

Looking at these differences, my analysis suggests Chinas military spending is equivalent to the US spending about $US455 billion.

This is nearly double what is suggested by the figure obtained using a straight currency conversion. It means, in real terms, Chinas annual spending is about 74 per cent of the US.

GLOBAL COMPARISONS

Similar results hold for other countries where labour and services prices are comparatively low.

For example, official exchange rate estimates suggest military spending by Russia and India is just 10 per cent of the US.

But factoring in the lower prices facing their defence sectors suggests Russias military budget is equivalent to aboRead More – Source